Assume that aggregate demand is unaffected by the gas tax holiday. After the economy has fully adjusted to the gas tax holiday, the long-run effect is (an increase, no change, a decrease) in aggregate output and (an increase, no change, a decrease) in the price level.
Assume that aggregate demand is unaffected by the gas tax holiday. After the economy has fully adjusted to the gas tax holiday, the long-run effect is (an increase, no change, a decrease) in aggregate output and (an increase, no change, a decrease) in the price level.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume that aggregate
Transcribed Image Text:4. Shifts of the aggregate supply curve
Which of the following would shift the SRAS curve to the right (ignoring any potential effect on LRAS)?
There is a technological improvement that allows firms to reduce their costs of production permanently.
The interest rate decreases, spurring investment spending.
The world price of oil increases rapidly without warning but is not expected to remain at the new high level permanently. However, in the
short run, it is more costly for all firms to produce goods and services.
The government introduces a set of new regulations that make it more costly for firms to produce and sell goods and services. These
regulations are expected to be permanent.
O There is an increase in government spending.
Transcribed Image Text:The following graph shows the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve for an economy. Suppose
the government passes a temporary "gas tax holiday," removing the federal tax on gasoline between May and September.
Illustrate the short-run effect of this change, before any long-run adjustments have taken place, by shifting one or both of the supply curves (
SRAS and LRAS) on the following graph. If you do not believe there will be any long-term effects, leave the LRAS in its current position.
Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back
to its original position, just drag it a little farther.
240
LRAS
SRAS
200
SRAS
180
LRAS
120
80
40
AD
12
18
24
REAL GDP (Trillions of dollars)
Assume that aggregate demand is unaffected by the gas tax holiday. After the economy has fully adjusted to the gas tax holiday, the long-run effect is
in aggregate output and
in the price level.
PRICE LEVEL
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